Economic Sanctions in EU Private International Law

Tamás Szabados

• Publisher: Hart Publishing
• Year: 2020
• ISBN:
  9781509933525
• Edition: 1
• Topic: Law
• Subtopic: Conflict of Laws
• Index: Law

Economic sanctions are instruments of foreign policy. However, they can also affect legal relations between private parties – principally in contract. In such cases, the court or arbitration tribunal seized must decide whether to give effect to the economic sanction in question. Private international law functions as a 'filter', transmitting economic sanctions that originate in public law to the realm of private law. The aim of this book is to examine how private international law rules can influence the enforcement of economic sanctions and their related foreign policy objectives. A coherent EU foreign policy position – in addition to promoting legal certainty and predictability – would presuppose a uniform approach not only concerning the economic sanctions of the EU, but also with regard to the restrictive measures imposed by third countries. However, if we examine in detail the application of economic sanctions by Member States' courts and arbitral tribunals, we find a somewhat different picture. This book argues that this can be explained in part by the divergence of private international law approaches in the Member States.

1

Introduction

I.Economic Sanctions in Private International Law

Economic sanctions are ‘anomalies’ in the logic of free trade. Basedow described economic sanctions as a ‘stroke of fate’ for the companies affected.¹ Racine calls embargoes the most restrictive rules for international commerce and he depicts an embargo as an islet of resistance against the liberty characterising global commerce and an attack against the freedom of economic exchange.²

In addition to their intrusive nature disturbing the free flow of commerce, economic sanctions are surrounded by general scepticism. Many authors call their effectiveness into question. Speaking about the sanctions imposed by the European Union (EU), the positions seem to be quite polarised. EU sanction policy or a particular sanction regime was found by some authors to be successful,³ effective or ‘a relevant foreign policy tool’.⁴ However, doubts also encompass the effectiveness of the economic sanctions imposed by the EU. The EU has been the subject of criticisms that its sanctions pursuing foreign policy objectives are ‘generally ineffective’⁵ and they are applied inconsistently.⁶ In 1982, the European Parliament itself found in a resolution⁷ that:

(b)economic sanctions have a history of failure,

(c)economic sanctions have proved to be thoroughly unsatisfactory as a means of achieving foreign policy objectives, although they may be appropriate to complement other forms of action,

(d)hardly any state can be induced by economic pressure to make radical changes in its policies. Such pressure is much more likely to result in the hardening of political attitudes, while the national economies of the state imposing sanctions and of third countries not directly involved are very often as seriously affected and badly damaged as the national economy of the state on which sanctions have been imposed,

(e)there are many ways of circumventing and undermining economic sanctions. However stringently they are policed, it is impossible to guarantee that they are implemented absolutely consistently and without exception, at least in peace-time.

Taking the above into account, the European Parliament urged ‘the Commission and Council not to associate themselves with any general sanctions which are manifestly unenforceable’⁸ and to use economic sanctions only sparingly.⁹ As Gherari points out, the total success of sanctions is as rare as their complete failure.¹⁰ This also holds for the sanctions imposed by the EU.

In spite of their anomalous nature and all doubts, economic sanctions are ubiquitous. It suffices to refer here to the sanctions imposed against Russia or Iran, which feature almost every day on the front pages of newspapers. Irrespective of the question of the effectiveness of economic sanctions, they are present in international trade and affect the legal relationships between private parties. If we take a glance at the economic sanctions adopted by the EU, the multiplication of economic sanctions is remarkable. As the number of trade restrictions grows, so the number of cases involving economic sanctions increases.¹¹ The current network of economic sanctions has a widespread effect on the contractual relationship of private parties, primarily on the relationship between a private party from the target state and other private parties, but economic sanctions may also have repercussions on relationships between private entities which are not directly related to the target state.

Economic sanctions may be examined from many angles. Political science, international economics¹² and the study of international relations often examine the effectiveness of economic sanctions. Here, the focus is on whether or not the target state yields due to the economic sanction and changes its policy considered to be harmful. Public international law examines the legality of sanctions. Administrative law establishes the detailed rules of export and import, together with the possibility of exemptions. And even criminal law plays a role in establishing the penalties for violating economic sanctions. Economic sanctions are an instrument of foreign policy. This is also the case with the EU, where economic sanctions are an important component of the Common Foreign and Security Policy (CFSP) and the EU has competence to impose restrictive measures in pursuit of specific CFSP objectives. From a human rights point of view, a further commonly asked question is whether the economic sanctions imposed by the EU comply with human rights standards, and the Court of Justice of the European Union (CJEU) has sometimes established – as in the famous Kadi judgment¹³ – that certain measures did not meet these standards. It is thus obvious that economic sanctions may be found at the intersections of various branches and areas of law.

However, this book takes a different point of departure, and this is the perspective of private international law. Export and import regulation, including economic sanctions, provides a fertile ground for conflict lawyers, since commercial relations affected by economic sanctions concern more than one state by their nature.¹⁴ Economic sanctions not only interlace economic relations between states, but also those between private parties. In fact, the court seised has to decide in a legal dispute between private parties involving the application of an economic sanction, the origin of which may be traced back to a conflict between two or more states,¹⁵ usually between the state of the forum and another state, but it may equally be the case that the conflict involves two foreign states. The same issue may arise in proceedings before arbitral tribunals which do not even have a forum state.

The sanctions ordered to be applied by diplomats and the legislature must be applied to concrete cases by courts and arbitral tribunals. It may sometimes be difficult to decide whether to give effect to a sanction in a given legal relationship. For the courts of the Member States of the EU, it is unproblematic when they have to apply EU sanctions, but many times the question is whether a sanction imposed by a third country is applicable. Although EU private international law provides some rules for such cases, the courts of the Member States still have considerable leeway.

One can assert that there are only two options: to give effect or not to an economic sanction. The binarity of the logic of application/non-application of economic sanctions has an enormous significance for private parties; first, at the phase of transaction planning, when they intend to prevent the application of an economic sanction to their legal relation or conform their conduct to an economic sanction; and, later, in the event of a legal dispute. At both stages, the significance for the legal relationship of the parties of the predictability of the application or non-application of an economic sanction cannot be overstated. Behind the binarity of the application/non-application of economic sanctions, various adjudicatory techniques appear. It will be demonstrated that the conduct of the parties and institutions (primarily courts and arbitral tribunals) concerned and the outcome of such cases is largely influenced by the operation and interpretation of private international law rules.

II.The Aim of this Book

This book intends to present how the courts of the Member States and arbitral tribunals decide cases involving economic sanctions along with the rules of private international law. It will be demonstrated that private international law has a decisive role in determining the impact of economic sanctions on private law relationships. Private international law norms decide to a large extent whether an economic sanction must be applied or taken into account with regard to a contract entered into by private parties. Furthermore, it will be pointed out that the parties may develop techniques by which they can avoid the application of economic sanctions.¹⁶ These include the choice of a foreign court or arbitral tribunal for the adjudication of the legal dispute in order to prevent the application of an economic sanction. Hence, it needs to be examined whether EU sanctions may be ‘deactivated’ by such techniques. Additionally, it will be also shown that the decisions of the courts of the Member States of the EU involving the application of economic sanctions sometimes rely on foreign policy arguments, which seems (at least at first sight) to be at odds with the traditionally apolitical nature of private international law and may give rise to a decentralised European judicial foreign policy.

Economic sanctions are a popular subject for public international law analysis. Despite the proliferation of economic sanctions and their impact on a number of planned or existing contractual relationships, their examination by private lawyers has been rather limited, usually focusing on a particular economic sanction regime or decisions rendered by courts or arbitral tribunals. The growing number of such articles and case notes on the application of economic sanctions in court and arbitration practice demonstrates that this is a rapidly evolving area. Despite its practical relevance, surprisingly few comprehensive books have been written on the private international law aspects of economic sanctions.¹⁷ On many occasions, they have been touched upon in the broader context of overriding mandatory provisions, devoting less attention to the particularities of economic sanctions.

III.Methodology and the Scope of the Work

This book relies on the traditional doctrinal method. It provides answers to the questions posed based on domestic, EU and international legal sources. The focus here is on private international law. Although private international law issues are strongly intertwined with the rules of substantive contract law when applying economic sanctions, this book does not intend to give a comprehensive analysis of the substantive consequences of economic sanctions upon contractual relations. The assessment of economic sanctions from the perspective of substantive law will be addressed only insofar as substantive contract law may imply a way to ‘circumvent’ private international law rules to effectuate foreign economic sanctions. The focus of this book is on private international law and it primarily aims to present how private international law rules influence the application of economic sanctions and the realisation of foreign policy objectives, and how foreign policy considerations appear in private international law decision making.

The legal analysis of economic sanctions may take place from the perspective of public and private law. Without denying the significance of the public international law and administrative law implications of economic sanctions, this book will address the private law, and more specifically the private international law, aspects of economic sanctions. For this reason, the analysis does not include the legality of economic sanctions (which are often questioned because of their extraterritorial application), any review of economic sanctions in light of the safeguard of fundamental rights, and the responsibility of the state or the EU for imposing economic sanctions.

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